tl;dr
South Korea avoided a technical recession in Q2 2025 with a 0.6% GDP growth quarter-on-quarter, surpassing expectations and rebounding from a 0.2% contraction in Q1. Year-on-year growth rose to 0.5%. The economy showed steady growth driven by strong exports, stable consumption, and increased governm...
South Korea dodged a technical recession in Q2 2025 with a stronger-than-expected GDP growth of 0.6% compared to the previous quarter, rebounding from a 0.2% contraction in Q1. This performance surpassed economists’ forecasts of 0.5%, signaling resilience despite global economic challenges. Year-over-year growth also accelerated to 0.5%, up from zero in Q1, helping the world’s fourth-largest economy avoid two consecutive quarters of contraction.
The Bank of Korea noted that despite weaker momentum driven by diminished global demand and geopolitical risks, Q2’s data adds a positive dimension. South Korea’s growth is modest but steady, buoyed by robust exports, stable consumption, and targeted government expenditure. Final consumption expenditure rose by 0.7%, improving sharply from a slight decline earlier in the year. Private consumption grew 0.5%, supported by increased spending on motor vehicles, entertainment, and sports, reflecting enhanced consumer confidence amid moderate inflation and a healthy labor market.
Government spending outpaced private consumption with a 1.2% increase, largely propelled by higher spending on health benefits. Public expenditure has played a key role in supporting social policies and alleviating living costs for low-income and working families. The Bank of Korea emphasized that even modest domestic demand growth is vital to cushioning the economy against external pressures, noting that higher inflation might actually provide some benefits in this context.
Exports surged by 4.2% in Q2, marking a significant recovery for South Korea’s export-dependent economy. The semiconductor sector led export growth, followed by petroleum and chemical products. Renewed demand for memory chips, following a downturn that started in late 2023, signaled a revival in the tech sector. However, this upswing comes against the backdrop of a critical US trade deadline: without a deal by August 1, South Korean exports to the US risk a steep 25% tariff increase.
This looming trade issue poses a serious risk as the US remains South Korea’s second-largest export market, with exports accounting for 44% of the country’s GDP in 2023. Despite tough negotiations—particularly regarding agricultural imports of beef and rice—the South Korean government has maintained a firm stance, leaving little time to finalize an agreement. Failure to secure a deal could disrupt key industries such as autos and electronics, potentially stalling South Korea’s economic momentum in the second half of the year.